Net worth of the company

1. The tangible net worth of the company, as per the latest audited balance sheet, is not less than Rs.4crore 2. Company has been sanctioned working capital limit by bank/s or all-India financial institution/s 3. The borrowal account of the company is classified as a Standard Asset by the financing bank/s/ institution/s. Commercial Paper must be rated from either the Credit Rating Information Services of India Ltd. (CRISIL) or the Investment Information and Credit Rating Agency of India Ltd. (ICRA) or the Credit Analysis and Research Ltd. (CARE) or the FITCH Ratings India Pvt. Ltd. or such other credit rating agencies as may be specified by the Reserve Bank of India from time to time, for the credit rating purpose.

CP is issued for maturities between a minimum of 7 days and a maximum up to one year from the date of issue. The maturity date of the CP should not go beyond the date up to which the credit rating of the issuer of the CP is valid. CP can be issued in denominations of Rs.5lakh or multiples thereof. Amount invested by a single investor should not be less than Rs.5lakh (face value). CP can be issued as a “stand alone” product. The aggregate amount of CP from an issuer shall be within the limit as approved by its Board of Directors or the quantum indicated by the Credit Rating Agency for the specified rating, whichever is lower.

CP can be issued either in the form of a promissory note (Schedule I) or in a dematerialized form through any of the depositories approved by and registered with SEBI. CP’s are issued at a discount to face value as may be determined by the issuer. In case of CP’s higher the maturity period, higher is the yield. Also in case of CP’s as they are unsecured loans the yields are high. UBI invests in short term n long term (1year maturity) CP’s. It also invests in those CP’s which can be absorbed quickly in the secondary market. The deals are telephonically negotiated.

Certificate of Deposits Certificates of Deposits (CDs) are short-term borrowings by banks. CDs differ from term deposit because they involve the creation of paper, and hence have the facility for transfer and multiple ownerships before maturity. CD rates are usually higher than the term deposit rates, due to the low transactions costs. Banks use the CDs for borrowing during a credit pick-up, to the extent of shortage in incremental deposits.

Certificates of Deposit (CDs) is an instrument issued in dematerialized form or as a Issuance Promissory Note, for funds deposited at a bank or other eligible financial institution for a specified time period. Guidelines for issue of CDs are governed by various directives issued by the Reserve Bank of India from time to time. CD’s can be issued by Scheduled commercial banks excluding Regional Rural Banks (RRBs) and Local Area Banks (LABs) and selected India Financial Institutions that have been permitted by RBI to raise short-term resources within the umbrella limit fixed by RBI. Banks have the freedom to issue CDs depending on their requirements.

Minimum amount of a CD should be Rs.1lakh, i.e., the minimum deposit that could be accepted from a single subscriber should not be less than Rs. 1lakh and in the multiples of Rs. 1lakh thereafter. CDs can be issued to individuals, corporations, companies, trusts, funds, associations, etc. Non-Resident Indians (NRIs) may also subscribe to CDs, The maturity period of CDs issued by banks should be not less than 7 days and not more than one year. The FIs can issue CDs for a period not less than 1 year and not exceeding 3 years from the date of issue.

Banks have to maintain the appropriate reserve requirements, i.e., cash reserve ratio (CRR) and statutory liquidity ratio (SLR), on the issue price of the CDs. Banks/FIs should issue CDs only in the dematerialised form CD’s are transferable and unsecured securities. As this instrument is unsecured the yields are high. As they are issued by FI’s and banks they are more secured compared to CP’s and hence their yields are less compared to CP’s. UBI is active in both the primary and secondary market of CD’s Repo/ Reverse Repo Repo enables collateralized short term borrowing and lending through sale/purchase operations in. Under a repo transaction, a holder of securities sells them to an investor with an agreement to repurchase at a predetermined date and rate.

The transaction is nothing but collateralized lending as the terms of the transaction are structured to compensate for the funds lent and the cost of the transaction is the repo rate. In other words, the inflow of cash from the transaction can be used to meet temporary liquidity requirement in the short-term money market at comparable cost. To the lender of cash, the securities lent by the borrower serves as the collateral; to the lender of securities, the cash borrowed by the lender serves as the collateral.

In a repo transaction, there are two legs of transactions viz. selling of the security and repurchasing of the same. In the first leg of the transaction which is for a nearer date, sale price is usually based on the prevailing market price for outright deals. In the second leg, which is for a future date, the price is structured based on the funds flow of interest and tax elements of funds exchanged. This is on account of two factors. First, as the ownership of securities passes on from seller to buyer for the repo period, legally the coupon interest accrued for the period has to be passed on to the buyer. Thus, at the sale leg, while the buyer of security is required to pay the accrued coupon interest for the broken period, at the repurchase leg, the initial seller is required to pay the accrued interest for the broken period to the initial buyer.

A reverse repo is the mirror image of a repo. For, in a reverse repo, securities are acquired with a simultaneous commitment to repurchase. Hence whether a transaction is a repo or a reverse repo is determined only in terms of who initiated the first leg of the transaction. Repo/ Reverse Repo takes place at Repo/ Reverse Repo rate and the rate is annualised interest rate i.e. the rate is for 1year hence the corresponding rate for which the repo transaction has taken place is calculated.